NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Commodities for the Long Run

Ari Levine, Yao Hua Ooi, Matthew Richardson

NBER Working Paper No. 22793
Issued in November 2016
NBER Program(s):Asset Pricing

This paper analyzes a novel data set of commodity futures prices over a long sample period starting in 1877, which allows us to shed new light on several important and controversial questions. We document that commodity futures returns (1) have been positive on average; (2) vary significantly across business cycles, inflation episodes, and periods of backwardation versus contango, (3) are driven mostly by variation of spot returns and therefore closely linked to the underlying commodity spot market; (4) perform well during inflation cycles and provide more return in backwardated states; and (5) display low correlation with stocks and bonds. These long-run stylized facts imply that commodity futures can add value to a diversified portfolio from an asset allocation perspective.

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Document Object Identifier (DOI): 10.3386/w22793

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